The sequester, explained
Posted by Suzy Khimm
on September 14, 2012 at 2:35 pm

The White House has released its plan explaining how the sequester’s mandatory spending cuts to defense and domestic spending will be implemented in 2013. Here’s the background on what the sequester is, how it happened and what happens from here:

What is the sequester?

It’s a package of automatic spending cuts that’s part of the Budget Control Act (BCA), which was passed in August 2011. The cuts, which are projected to total $1.2 trillion, are scheduled to begin in 2013 and end in 2021, evenly divided over the nine-year period. The cuts are also evenly split between defense spending — with spending on wars exempt — and discretionary domestic spending, which exempts most spending on entitlements like Social Security and Medicaid, as the Bipartisan Policy Center explains. The total cuts for 2013 will be $109 billion, according to the new White House report.

Under the BCA, the cuts were triggered to take effect beginning Jan. 1 if the supercommittee didn’t to agree to a $1.2 trillion deficit-reduction package by Nov. 23, 2011. The group failed to reach a deal, so the sequester was triggered.

Why does everyone hate the sequester so much?

Legislators don’t have any discretion with the across-the-board cuts: They are intended to hit all affected programs equally, though the cuts to individual areas will range from 7.6 percent to 9.6 percent (and 2 percent to Medicare providers). The indiscriminate pain is meant to pressure legislators into making a budget deal to avoid the cuts.

How would these cuts affect the country?

Since the details just came out, it’s not entirely clear yet. But many top defense officials have warned that the cuts will lead the military to be “hollowed out.” Democratic legislators have similarly warned about the impact on vital social programs. And defense, health care and other industries that are significantly dependent on federal spending say that major job losses will happen if the cuts end up taking effect.

At the same time, if legislators try to avoid the sequester without replacing it with real deficit reduction, the U.S. could face another credit downgrade.

Why did Congress and the White House agree to the sequester in the first place?

The government was approaching its debt limit, which needed to be raised through a congressional vote or else the country would default in early August 2011. While Democrats were in favor of a “clean” vote without strings attached, Republicans were demanding substantial cuts in exchange for raising the debt limit.

President Obama and congressional leaders ultimately agreed to the BCA, which would allow the debt ceiling to be raised by $2.1 trillion in exchange for the establishment of the supercommittee tied to the fall-back sequester, as the Center for Budget and Policy Priorities explains. The deal also includes mandatory spending reductions on top of the sequester by putting caps on non-entitlement discretionary spending that will reduce funding by $1 trillion by 2021.

Who supported the debt-ceiling deal?

Party leaders, the White House and most members of Congress supported the debt-ceiling deal: The BCA passed on a 268-161 vote in the House, with about one-third of House Republicans and half of House Democrats opposing it. It passed in the Senate, 74-26, with six Democratic senators and 19 Republican senators opposing it.

Can the sequester be avoided?

Yes, but only if Congress passes another budget deal that would achieve at least $1.2 trillion in deficit reduction. Both Democrats and Republicans have offered proposals to do so, but there still isn’t much progress on a deal. The political obstacles are the same as during the supercommittee negotiations: Republicans don’t want to raise taxes to generate revenue, while Democrats are reluctant to make dramatic changes to entitlement programs to achieve savings.

What happens from here?

No one on Capitol Hill thinks any deal will happen before Election Day. After Nov. 6, Congress will have just a few weeks to come up with an alternative to the sequester. The challenge is complicated by the fact that the Bush tax cuts, the payroll tax, unemployment benefits and a host of other tax breaks are all scheduled to expire Dec. 31. The cumulative impact of all of these scheduled cuts and changes is what’s popularly known as the fiscal cliff. There’s already talk of passing a short-term stopgap budget plan during the lame-duck session to buy legislators more time to come up with a grand bargain.

Senate Dems look past sequester to government shutdown fight
Posted by Greg Sargent
on February 20, 2013 at 2:12 pm

Ever since Senate Democrats unveiled their plan to avert the sequester with a mix of new revenues and spending cuts, there has been no negotiations between the Democratic and Republican leadership offices in the Senate about it, a senior Senate Democratic aide tells me. No discussions about any potential compromises. No signal to Harry Reid’s office of any kind from Mitch McConnell that Republicans may be open to even discussing new revenues.

That’s not terribly surprising, given that Republicans are adamantly opposed to asking for even a penny in new revenues from the wealthy in order to avert a sequester that they themselves say will damage the military and the economy. But it highlights the emerging view among Democratic aides about how this is likely to play out.

Democrats believe the real action on the sequester has yet to come, and will ramp up in earnest in March. Which means, of course, that the cuts will kick in. Democrats no longer see the sequester as sufficient to force Republicans to cave on new revenues; rather, they increasingly see the looming government shutdown deadline of March 27th as the real means for them to force a GOP surrender.

The idea is that the sequester isn’t as dramatic a deadline as the fiscal cliff and debt ceiling deadlines were. And in any case, Dems believe Republicans plainly need to mount a stand against new revenues, and not back down, in order to give conservatives a “victory,” if you can call it that. Once that happens, Dems hope, and the sequester begins kicking in during the month of March, the looming government shutdown deadline — combined with increasing uneasiness about the sequester among GOP-aligned constituencies, such as defense contractors — will be the one that will ultimately force some Republican concessions on revenues.

“The sequester doesn’t have that immediate shock value,” a senior Senate Democratic aide tells me. “It’s not the kind of thing where people wake up on March 1st and realize it happened. It doesn’t have the sort of acute impact that the fiscal cliff or debt ceiling did. We need a harder backstop to really force this fight.”

That “harder backstop” is the threat of a government shutdown, which gets the attention of the public — and with the GOP brand in trouble, Dems hope, it will be hard for Republicans to cling to their no-revenues-at-any-costs stance. “March is the month where negotiations will really ramp up,” the aide says.

There is simply no endgame in which Dems cave and accept only spending cuts to offset the sequester, the aide insists. That’s because no set of spending cuts is preferable to the sequester, from the point of view of Dems, so there’s no incentive to make such a deal.

“There is no other formulation of the sequester that is more appealing to us than the current formulation,” the aide says, referring to formulations that only include cuts. “The hit in defense is not any worse for us than the hits we would take from our base from agreeing to non defense discretionary cuts. That’s why at the end of the day there has to be revenues.”

So the sequester is all but certain to hit. And then the fighting will really intensify in March. Fun times!

Senate Dems look past sequester to government shutdown fight
Posted by Greg Sargent
on February 20, 2013 at 2:12 pm

Ever since Senate Democrats unveiled their plan to avert the sequester with a mix of new revenues and spending cuts, there has been no negotiations between the Democratic and Republican leadership offices in the Senate about it, a senior Senate Democratic aide tells me. No discussions about any potential compromises. No signal to Harry Reid’s office of any kind from Mitch McConnell that Republicans may be open to even discussing new revenues.

That’s not terribly surprising, given that Republicans are adamantly opposed to asking for even a penny in new revenues from the wealthy in order to avert a sequester that they themselves say will damage the military and the economy. But it highlights the emerging view among Democratic aides about how this is likely to play out.

Democrats believe the real action on the sequester has yet to come, and will ramp up in earnest in March. Which means, of course, that the cuts will kick in. Democrats no longer see the sequester as sufficient to force Republicans to cave on new revenues; rather, they increasingly see the looming government shutdown deadline of March 27th as the real means for them to force a GOP surrender.

The idea is that the sequester isn’t as dramatic a deadline as the fiscal cliff and debt ceiling deadlines were. And in any case, Dems believe Republicans plainly need to mount a stand against new revenues, and not back down, in order to give conservatives a “victory,” if you can call it that. Once that happens, Dems hope, and the sequester begins kicking in during the month of March, the looming government shutdown deadline — combined with increasing uneasiness about the sequester among GOP-aligned constituencies, such as defense contractors — will be the one that will ultimately force some Republican concessions on revenues.

“The sequester doesn’t have that immediate shock value,” a senior Senate Democratic aide tells me. “It’s not the kind of thing where people wake up on March 1st and realize it happened. It doesn’t have the sort of acute impact that the fiscal cliff or debt ceiling did. We need a harder backstop to really force this fight.”

That “harder backstop” is the threat of a government shutdown, which gets the attention of the public — and with the GOP brand in trouble, Dems hope, it will be hard for Republicans to cling to their no-revenues-at-any-costs stance. “March is the month where negotiations will really ramp up,” the aide says.

There is simply no endgame in which Dems cave and accept only spending cuts to offset the sequester, the aide insists. That’s because no set of spending cuts is preferable to the sequester, from the point of view of Dems, so there’s no incentive to make such a deal.

“There is no other formulation of the sequester that is more appealing to us than the current formulation,” the aide says, referring to formulations that only include cuts. “The hit in defense is not any worse for us than the hits we would take from our base from agreeing to non defense discretionary cuts. That’s why at the end of the day there has to be revenues.”

So the sequester is all but certain to hit. And then the fighting will really intensify in March. Fun times!

Whew. You had me scared there for a while posting so many articles why sequestration was bad.

Republicans have decided that the sequester scheduled for March 1 — not a government-funding bill due at the end of March — is where they’ll make their stand on spending cuts.

After the bruising political battles of the last Congress, GOP leaders have decided the looming automatic spending cuts provide the best leverage to move President Obama to negotiate on costly entitlement programs.

“Republicans are not going to take a stand on a government shutdown. We’re not going to take a stand on the debt ceiling. We’re going to take a stand on the sequester,” said a Republican senator, who requested anonymity to discuss his party’s strategy.

“The sequester affects programs President Obama likes and we think it’s the best chance of getting his attention on spending,” the lawmaker added.

GOP leaders see the spending sequester as the political inverse of the fiscal cliff. Republicans felt they had little choice, at the end of 2012, but to agree to tax increases because if they did not compromise, all of the Bush-era tax rates would have expired.

Republican aides say the onus is now on Obama and the Democrats to give ground because if there is no deal, federal programs will see an $85 billion reduction between March 1 and the fiscal year’s end.

While Republicans want to avoid cuts to military spending, they believe Democrats are more eager to spare social programs from across-the-board reductions.

A Senate GOP aide said Republicans will take the sequester before agreeing to any tax increases to offset the cost of stopping it.

“Is it designed the way you’d like it to be designed? No. Is it a guaranteed reduction of spending? It is, and we’ll take that,” said the aide.

A few Senate Republicans say they are willing to consider tax increases to pay for a package to stop sequestration from hitting.

But even the most centrist members of the Republican Conference say the package introduced by Senate Majority Leader Harry Reid (D-Nev.) last week is tilted too heavily toward tax increases.

“I would not support increases in income tax rates because we’ve already settled that issue. It sounds like it’s weighted way too heavily on the tax side given what we’ve already done,” said Sen. Susan Collins (R-Maine).

Collins said she would support eliminating tax subsidies for major oil-and-gas companies.

But Reid left that proposal out in part because of opposition from Sens. Mary Landrieu (D-La.) and Mark Begich (D-Alaska), who represent oil-rich states and face reelection next year.

The Senate Democratic package would raise about $55 billion in new tax revenues and cut $55 billion in spending to stop the sequester through the end of the calendar year.

“Half? I don’t think it gets there. You’re just not going to have the [needed] level of support,” said Sen. Lisa Murkowski (R-Alaska).

Sen. John McCain (R-Ariz.) said on Fox News earlier this month that he might consider ending some tax breaks to stop defense cuts.

But altogether, a senior GOP aide said, the total number of Senate Republicans willing to support tax increases to pay for the sequester “is probably a population under five.”

Several other Republican lawmakers, such as Sen. Lindsey Graham (R-S.C.), who have expressed support for raising additional tax revenues, insist it should be done in the context of a broad deal to reform entitlement programs.

Conservative activists warn GOP leaders will face a backlash if they agree to stop the sequester in a deal that raises taxes or relies on a budget gimmick to mask its impact on the deficit.

“I think the grassroots will be greatly dismayed by Republicans kicking the can down the road again and will fight hard to prevent that from happening. These cuts are modest trims to projected future spending growth,” said Dean Clancy, vice president of public policy at FreedomWorks, a conservative advocacy group.

A Senate GOP aide said that conservative House Republicans would be willing to accept a stopgap measure funding the government through the end of the fiscal year if the sequester were to take effect as scheduled.

“The sequester might be the best medicine for preventing a government shutdown,” said the aide.

House Appropriations Committee Chairman Hal Rogers (R-Ky.) is working on a $1.043 trillion continuing resolution for the rest of the fiscal year. The sequester would chop $85 billion from the fiscal-year budget, bringing it roughly in line with the $974 billion level Speaker John Boehner (R-Ohio) has promised to conservatives.

A spokesman for the conservative Republican Study Committee did not respond to a request for comment.

Boehner told The Wall Street Journal in an interview last month that the sequester would give Republicans a stronger card to play against Obama in negotiations on entitlement program spending, a major driver of the federal deficit.

Boehner said the suspension of the debt limit, which is set to expire on May 19, is “one point of leverage” but “not the ultimate leverage.”

Obama has insisted he will not negotiate spending cuts or entitlement reforms in exchange for raising the debt limit. So far, Republicans have shown little appetite for the nasty political fight that political analysts believe hurt them in the summer of 2011.

Obama delivered remarks Tuesday setting the GOP up for blame if the sequester takes effect, saying that “if Congress allows this meat cleaver approach to take place, it will jeopardize our military readiness.”

A Senate Democratic aide noted it would cut 5 percent in non-discretionary programs because many mandatory programs would be exempt.

Discretionary defense programs would see a 7.3 percent cut.

Republican aides argue the sequester would only trim about 2.4 percent from the total federal budget and that its impact on defense programs could be easily mitigated by shifting cuts to other areas.

“Finding modest savings in the dozens of exempt programs should be easily doable,” said a GOP aide.

New study badly undermines GOP position on sequester
Posted by Greg Sargent
on February 20, 2013 at 12:02 pm

In a rational world, a new study that came out today on income equality would constitute a major blow to the GOP argument on the sequester.

The new study was performed by Thomas Hungerford of the non-partisan Congressional Research Service. Though the study is not a CRS product, Hungerford’s data is widely cited on both sides; he’s an impeccably objective analyst.

Here’s what Hungerford found: The single greatest driver of income inequality over a recent 15 year period was runaway income from capital gains and dividends.

This finding is directly relevant to the current debate, because Obama and Democrats want to offset the sequester in part by closing loopholes enjoyed by the wealthy, such as the one that keeps tax rates on capital gains and dividends low. Dems want to do this in order to prevent a scenario where the sequester is averted only by deep spending cuts to social programs that could hurt a whole lot of poor and middle class Americans. Republicans oppose closing any such loopholes and want to avert the sequester with only deep spending cuts.

Hungerford’s report, like all serious examinations of inequality, is very complicated. He looks at a bunch of recent data on inequality from the period from 1991-2006 — measured by the so-called “Gini index” — and calculates the degree to which various factors exacerbated it. Hungerford found that over that period, the rise in the Gini index (a story that’s been widely told elsewhere, one that’s largely been driven by the runaway wealth of the top one percent and top 0.1 percent) was driven mainly by the rise in capital gains and dividends income.

“By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends,” the report concludes.

Or, as Hungerford put it in an interview with me: “The reason income inequality has been increasing has been the rising income going to the top one percent. Most of that has come in capital gains and dividends.”

In other words, wealthy beneficiaries of low tax rates on capital gains and dividends are doing extremely well — and their runaway wealth is a major driver of income inequality. There’s a lot of that money out there that could be taxed as ordinary income — as Obama and Dems want — as a way to avert the sequester, which could badly damage the economy. Republicans oppose this.

This finding comes as even some conservatives are reckoning with the fact that the GOP’s message on the sequester is deeply flawed. Writer Byron York notes today that Republicans are openly conceding that the sequester will gut the military, even as they openly point to the sequester as an acceptable policy outcome. As York argues, this has put Republicans in an “untenable position.”

If anything, that position is made worse by the new study’s finding. After all, Republicans are openly conceding the sequester will damage our national security, even as they refuse to avert it by agreeing to the closing of loopholes benefiting the wealthy — even though this would likely be part of a deal in which they got more in spending cuts than they’d be conceding in new revenues! As the new study shows, those benefiting from GOP opposition to any new revenues are doing extremely well indeed — lending more ammo to the Democratic argument that Republicans would sooner damage our military and economy than ask for a penny in new revenues from the very rich.

A new USA Today/Pew Research poll finds President Obama "starts his second term with a clear upper hand over GOP leaders on issues from guns to immigration that are likely to dominate the year. On the legislation rated most urgent -- cutting the budget deficit -- even a majority of Republican voters endorse Obama's approach of seeking tax hikes as well as spending cuts."

"The survey underscores the quandary for the GOP as it debates the party's message in the wake of disappointing losses last November for the White House and in the Senate."

A new USA Today/Pew Research poll finds President Obama "starts his second term with a clear upper hand over GOP leaders on issues from guns to immigration that are likely to dominate the year. On the legislation rated most urgent -- cutting the budget deficit -- even a majority of Republican voters endorse Obama's approach of seeking tax hikes as well as spending cuts."

"The survey underscores the quandary for the GOP as it debates the party's message in the wake of disappointing losses last November for the White House and in the Senate."

The Republicans are not idiots, they will see the real #'s privately and will close loopholes for the rich before or soon after the deadline just for self preservation purposes.

I honestly think they're going to fly through the sequester, and hope the cudgel that slams the economy early in the month will weaken the DNP's resolve for the budget fight.

I don't know how successful that would be. Democrats have all the leverage right now, they've already raped the GOP on the fiscal cliff and the debt ceiling.

The GOP got the great deal that they got in the summer of 2011 because they had the DNP convinced that they were willing to cut the baby in half. The DNP is calling this bluff over and over again now, and the GOP folds. Because, of course, they don't want the economy to tank.

But I don't think they can make another lopsided deal on the sequester and expect a lot of their candidates to survive the inevitable Tea Party primary challenges in 2014. So they'll stand their ground on the sequester, and try to drive pressure on the DNP during the budget fight.

The one exception to all this theorizing is that the GOP was rolled in these previous two cliff fights because the Obama administration was effective at getting the business community to lean incredibly hard on them, putting them in ever tenuous position -- they had to publicly claim they were willing to go off a cliff, while assuring businesses they had absolutely no interest in doing that. This of course robbed them of all their leverage. And I can't help but think the military industrial complex that the GOP has made a career out of supporting will be leaning on them incredibly hard on the sequester.

This time around, however, the GOP is trying to just pin the blame on Obama rather than assure anybody of anything. And, well, the polls suggest how well that's working out for them.

This time around, however, the GOP is trying to just pin the blame on Obama rather than assure anybody of anything. And, well, the polls suggest how well that's working out for them.

Obama and his public communication is light years ahead of when he allowed the Republicans to sell death panels to the public. There is no way he is going to allow the Republicans to pin this on him. All of the polls, even the Fox news polls say the Republicans will get killed on this. Obama just gets dinged.

The fly in the ointment is self preservation and fear of being primaried. He doesn't need to get re-elected, they do.

__________________
Fear is the path to the Dark Side. Fear leads to anger, anger leads to hate, hate leads to suffering.

After a series of fiscal crises over the past few years, the public is not expressing a particular sense of urgency over the pending March 1 sequester deadline. With little more than a week to go, barely a quarter have heard a lot about the scheduled cuts, while about as many have heard nothing at all.

And if the president and Congress cannot reach a deficit reduction agreement before the deadline, 40% of Americans say it would be better to let the automatic spending cuts go into effect, while 49% say it would be better to delay the cuts. Both Republicans and independents are divided evenly over which approach is better, and even among Democrats, roughly a third favor letting the sequester take effect over any delays.

The new survey, conducted Feb. 13-18, 2013 with 1,504 adults nationwide, is the first in a collaboration between the Pew Research Center and USA TODAY. It finds that, as with previous conflicts over the debt ceiling and fiscal cliff, Obama holds the upper hand politically over congressional Republicans. If there is no deficit deal by March 1, 49% say congressional Republicans would be more to blame while just 31% would mostly blame President Obama.

Moreover, 76% say that the president and Congress should focus on a combination of spending cuts and tax increases to reduce the budget deficit. Just 19% agree with the current Republican position that tax increases should be off the table.

And while Obama’s 51% job approval rating is down slightly from a post-election high of 55%, it remains well above the 25% approval rating for GOP congressional leaders. The job rating for Democratic leaders is higher (37%), though more disapprove (55%) than approve of their performance.

The poll finds new evidence of the public’s concern over the federal budget deficit. Fully 70% say it is essential for the president and Congress to pass major legislation to reduce the federal budget deficit, including wide majorities across party lines. Last month, the Pew Research Center’s annual policy priorities survey found a sharp rise in the percentage rating deficit reduction as a top priority since 2009.

How Much Discretion does Obama Have Over Sequester Cuts?
by Nolan McCarty
on February 21, 2013

As we approach the increasingly likely sequestration cuts, a debate is emerging over exactly how much discretion the President and his Office of Management and Budget (OMB) have over how the cuts are applied. Not surprising, this question has a partisan dimension. For example, in a sequestration FAQ released by House Budget Committee Democrats the answer is “almost none” while Republicans and conservatives are suggesting that Obama has a lot of discretion over how to apply the cuts.

Like many things, the answer is somewhere between the partisan extremes. It is true that the sequester is to be applied at the level of the budget account rather than the agency or program. This of course limits the ability of the OMB to shift monies around in response to the mandated cuts. Of the 897 accounts subject to sequester (Social Security, Medicare, and some Defense personnel accounts are exempt), some are quite small and targeted to specific activities. Those activities will clearly face the full brunt of the cuts. But some accounts are huge. For example, the National Institutes of Health has one $35 billion account that consolidates 25 different activities. So OMB will have lots of discretion in managing those cuts. Another source of discretion is that “all agencies will continue to have their existing transfer authority with the limitations that are specific to each agency.” In other words if agencies were allowed to shift money between accounts before, that authority would not be affected by the sequester. So some agencies will have the ability to cut less in some areas and more in others. Other pieces of evidence suggesting that the OMB plans to exercise more discretion than revealed in its September 14 sequester report is that it has more or less issued a gag order against agency officials from talking about the effects of sequestration cuts.

The stakes of the political debate are heightened precisely because the extent of presidential and OMB discretion is not very transparent. For example, the president can say that the sequestration will force him to furlough air traffic controllers and Transportation Security agents, but it will be very hard to determine whether or not those cuts were inevitable. Thus, we should expect a nice round of blame-game politics where Republicans charge that president has politically manipulated the cuts to make the public (especially those in bluish Republican congressional districts) feel all the pain. And the Republicans might be right, but they’ll have a tough time proving it.